Business owners work hard to establish and grow their business. However, there may come a time when they feel the need to either sell their business or move to another business.
Although you may not feel that time will ever come for you, as a business owner, you should always have a plan in place for such a situation before it arises.
While the specifics of such a plan will vary based on the size, complexity, and financial standing of your business, there are seven factors that every business owner should consider before deciding to sell.
1. Business structure and ownership
How your business is structured and who all owns a piece of it will affect the sale of your business.
If you are the sole proprietor/owner of your business, then the decision is up to you and does not require many formalities.
However, if your business is organized as a limited liability company (LLC) or corporation, then all members and/or shareholders must agree to the sale of the business. Such an agreement can take the form of a corporate resolution, which is normally dictated by the operating agreement or bylaws of the company.
Finally, depending on the corporate structure of your business, there may be other corporate formalities that must be observed in order for the sale of your business to be valid.
2. Tax consequences
Regardless of how the sale is structured, there will inevitably be tax consequences to the sale of your business.
Due to the specialized nature of tax law, tax consequences are beyond the scope of this article; however, it is highly recommended that you consult with a tax advisor or secure a certified public accountant (CPA) before offering your business for sale.
3. Due diligence
Although due diligence is talked about when buying a business, it is just as important when selling a business. The more prepared you are, the better off you will be when asking for the full value of your business and completing the final transaction.
It is also important to protect yourself and your business information when trying to sell your business. Usually, a buyer will ask to see the financial records of the business. Before disclosing any private information about your business, make sure to protect yourself by asking the potential buyer to sign a confidentiality agreement.
Employees are an inseparable part of the success of any business. As such, their status should be carefully attended and addressed fairly when considering the sale of your business.
Make sure to discuss the selling of your business with employees beforehand and to discuss your employees with any potential buyers.
It can be hard to put a value on a business that you’ve worked hard to build, sometimes over years. However, if you decide to sell your business, it is important to put aside any emotions that may lead you to ask for an unrealistic price for the purchase of your business.
There are many formulas and ways that can help you determine the realistic value of your business. As examples, you can consult with a CPA, hire a business evaluator, or do market research to find out what value the market places on your business.
6. Structure of the sale
There are many factors to consider when deciding on the sale structure of your business, which will vary from business to business and based on your consultations with a CPA, partners, and/or a lawyer.
For example, some of the questions you could consider are:
>Do you want to sell your business as an asset sale?
>Do you want your selling price paid in cash, in one payment, etc.?
>Are you willing to owner finance or take a note for partial payment?
>Are you willing to hold a partial membership interest or shares in the company?
Make sure to consider every angle and possibility when planning your sale structure.
Both your and your buyer’s finances will factor into the sale of your business.
Typically, it is the buyer’s responsibility to secure the agreed-upon purchase price of a business. However, in many instances, a buyer does not have enough cash on hand to pay the entire price.
Therefore, outside financials sources are customary in sales transactions of this nature, and, depending on your financials and tax situations, it may be beneficial for you to offer some help financing the transaction.
Although these are just seven factors to consider, they are a good starting point when it comes to selling your business.
Deciding to sell your business is a major step; however, by taking the time to plan and consider important factors before diving in, you will have a much easier time when it comes to the final sale and transaction than if you left the planning until the end.
Note: This post was originally posted 3/17/17. It has been updated as of 10/15/19.
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Disclaimer: Nothing in relation to the enclosed information should be construed and or considered as legal advice for any individual, entity, case, or situation. The following information is prepared for advertisement use only. The information is intended ONLY to be general and should not be relied upon for any specific situation. For legal advice on your specific situation, we encourage you to consult an attorney experienced in the area of Immigration Law.